Jakarta. Indonesia's central bank expects the US Federal Reserve to cut interest rates two more times until the first quarter of 2026, creating room for Bank Indonesia to lower its own benchmark rate in the future.

The Fed reduced its target range by 25 basis points at its Oct. 28–29 FOMC meeting to 3.75 percent–4.00 percent. Markets are pricing two cuts this year and one next year, BI Governor Perry Warjiyo said, but BI’s view is slightly more conservative: one more cut in late 2025 and another in the first quarter of 2026.

“Given this outlook, there is space for a lower BI Rate. Timing will depend on domestic inflation and the need to support growth,” Perry told reporters after the quarterly Financial System Stability Committee meeting in Jakarta.

Indonesia has already anticipated the Fed cuts. BI has cut its policy rate six times since September 2024 for a total 150 bps of easing. The BI Rate stands at 4.75 percent, with the Deposit Facility at 3.75 percent and the Lending Facility at 5.50 percent.

The central bank is now assessing the transmission into deposit and lending rates and is explicitly pushing banks to cut borrowing costs to help revive credit. A Rp 200 trillion government capital injection is being deployed to support loan expansion and offset lagged policy transmission.

A slower and longer Fed easing cycle, but still easing, means Indonesia’s rate gap stays broadly stable, helping to limit rupiah volatility risk, Perry said. BI’s forward guidance remains conditional, not based on a fixed timetable.

“What we monitor is future inflation and how much room we have to support growth,” he said.

BI also underlined that rupiah stability remains a key anchor alongside inflation control.

The rupiah weakened again on Monday, pressured by cautious comments from the US Federal Reserve that strengthened the dollar. The local currency fell 45 points to Rp 16,676 per US dollar, from Rp 16,631 on Friday, after briefly touching a deeper loss earlier in the session.

Market sentiment turned negative after Fed Chair Jerome Powell signaled that further US rate cuts were “not a certainty,” even after last week’s 25 basis point cut, pushing the dollar near a three-month high.

Inflation in Indonesia also ticked higher in October 2025, mainly driven by rising jewelry prices, the Central Statistics Agency (BPS) reported.

Headline CPI rose 0.28 percent month-on-month, lifting annual inflation to 2.86 percent from 2.65 percent in September. Year-to-date inflation reached 2.10 percent, while core inflation stayed steady at 2.2 percent, BPS Deputy for Distribution and Services Statistics Pudji Ismartini said.